The average 401(k) balance reached $75,900 at the end of the third quarter on September 30, 2012, up 18 percent from $64,300 a year ago. This is the highest average 401(k) balance Fidelity Investments has recorded since it began tracking this number more than 12 years ago.
Both employee saving and improved employer contributions contributed to the recent growth in account balances. The analysis of 20,200 401(k) plans with 12 million participants found that average annual employee contributions grew 7.3 percent over the past five years from $5,500 at the end of the third quarter of 2007 to $5,900 in 2012. Over the same time period employer contributions including a 401(k) match and profit sharing contributions grew 19 percent from $2,880 in 2007 to $3,420 in 2012.
Some retirement savers have recently been able to boost their savings rate. More participants increased their savings rate in the third quarter (4.6 percent) than decreased it (2.8 percent).
The proportion of new 401(k) savings allocated to target-date funds has more than doubled over the past five years. Over a third (34 percent) of 2012 contributions have been invested in target-date funds, up from 15 percent in 2007. New contributions into equities including domestic equity, international equity, and company stock decreased from 62 percent in 2007 to 46 percent in 2012. Contributions to more conservative investment options such as stable value funds, fixed income funds, and annuities remained about 18 percent over the five-year period.
The Fidelity analysis also found that some 401(k) plan features that were designed to increase savings and participation in 401(k) plans, such as automatic enrollment in retirement accounts and automatic escalation of the amount saved, may actually be causing people to save less for retirement. New 401(k) participants who were automatically enrolled in their company plan had an average saving rate of 3.7 percent of their pay in the third quarter, compared to an average savings rate of 8.4 percent in plans without automatic enrollment. "This may be attributed to plans auto-enrolling participants at too low of a default deferral rate, such as the common 3 percent," according to a statement from Fidelity. "Fidelity suggests plans adopt a 6 percent auto-enrollment default rate with an automatic escalation of 1 percent annually, up to 10 percent."
Fidelity 401(k) participants have experienced significant losses and recoveries over the past several years. The average Fidelity 401(k) held $69,200 in 2007, before dropping to $50,200 in 2008 and then climbing to $64,200 at the end of 2009. The average 401(k) account balance was $71,500 at the end of 2010 and $69,100 at year-end 2011.
Other major 401(k) providers have observed similar volatility in average 401(k) balances. The average 401(k) balance for Vanguard participants plunged from $78,411 in 2007 to $56,030 in 2008. But then balances climbed to $79,077 in 2010, before declining to $78,276 at the end of 2011.